Global Banking Economist Warned of Coming Crisis
http://www.spiegel.de/international/business/0,1518,635051,00.html
...The BIS (Bank for International Settlements) is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.
The penthouse at the top of the building, with its magnificent view of Basel, is decorated for the annual dinner, the nuclear shelter in the basement is swept out and the wine cellar is restocked with the best wines. At the BIS's private country club, gardeners prepare the tennis courts as if a Grand Slam tournament were about to be held there. The losers of matches can find comfort in the clubhouse, where the Indonesian guest chef serves up Asian delicacies à la carte.
"Central bankers can sometimes be prima donnas," says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.
The corridors of the BIS headquarters buildings are lined with retro white leather chairs and sofas from the 1970s. The round table where the delegates address the problems of the global economy is polished to a high gloss. But the most impressive space of all is the auditorium, with its modern armchairs in white leather and chrome, the thousands of tiny LED lights, the booths in the back where the interpreters sit behind one-way glass, and the console where the financial masters of the world do their work, centrally positioned at the front of the room. The room is evocative of the control room in "Star Trek." It was supposed to be the hub from which the financial world was to be guided through every possible hazard.
Naturally, the building is largely bugproof, the goal being to prevent anything from leaking to the outside and any unauthorized individuals from penetrating into its interior. There are no public minutes of the meetings. Everything that is discussed there is confidential. The word transparency is unknown at the BIS, where nothing is considered more despicable than an indiscreet central banker.
Central bankers, proud of their independence, are intent on holding themselves above all partisan influences while taking all necessary measures to keep the global economy healthy.
These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.
It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world's total currency reserves, or €217 trillion ($304 trillion), as well as 120 tons of gold.
"Our strength is that we have no power," says BIS Secretary General Peter Dittus. "Our meetings are generally not oriented toward decision-making. Instead, their value consists in the exchange of views." There are no across-the-board agreements on the order of: "Let's raise the prime rate by a point." Opinions take shape in a much more subtle fashion, through something resembling osmosis.
Central bankers are not elected by the people but are appointed by their governments. Nevertheless, they wield power that exceeds that of many political leaders. Their decisions affect entire economies, and a single word from their lips is capable of moving financial markets. They set interest rates, thereby determining the cost of borrowing and the speed of global financial currents.
Their greatest responsibility is to prevent a bank or market crash from jeopardizing the viability of the financial system and, with it, the real economy. It is no accident that central bankers are also in charge of bank supervision in most countries.
But this time they failed miserably. How could this community of central bankers, despite its access to insider information, have so seriously underestimated the dangers? And why on earth did it not intervene?
"Somehow everybody was hoping that it won't go down as long as you don't look at the downside," William White told SPIEGEL. "Similar to the comic figure Wile E. Coyote, who rushes over a cliff, keeps running and only falls when he looks into the depth. Of course, this is nonsense. One falls, because there is an abyss."
But why did they all refuse to recognize the abyss? Why did the central bankers, of all people -- those whose actions are above profit expectations, shareholder pressure and the need to please voters -- keep their eyes tightly shut? Did they too succumb to the general herd instinct?
"As long as everything goes well, there is a great reluctance to (make) any kind of change," says White. "This behavior is deeply rooted in the human mind."
White calls it the human factor. And that factor had a name: Alan Greenspan....
and...
Is the Federal Reserve really a federal agency?
http://www.examiner.com/x-8198-Economic-Policy-Examiner~y2009m5d22-Is-the-Federal-Reserve-really-a-federal-agency
Bloomberg news provides an overview of the Federal Reserve system:
The Federal Reserve, consisting of seven governors in Washington and 12 regional banks, was established in 1913 and charged by Congress with ensuring low inflation, maximum employment and a stable financial system.
Because "Federal Reserve" sounds like a federal name, and the Fed's chairman frequently testifies before Congress and appears on news shows, most Americans reasonably assume that the Federal Reserve and its member banks are all federal.
On the other hand, some people claim that the federal reserve system is not federal at all, and is entirely owned by the member banks which it regulates. For example, Congressman Dennis Kucinich said recently "the Federal Reserve is no more federal than Federal Express".
The Fed itself maintains that:
While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
This is problematic because:
The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion [now up to at least $1.9 trillion] of emergency lending programs [and accepting collateral from the banks in return].
Indeed:
The Federal Reserve Bank of New York ... runs most of the lending programs. Most documents relevant to [a freedom of information lawsuit filed by Bloomberg news] are at the New York Fed, which isn’t subject to FOIA law, according to the central bank. The Board of Governors has 231 pages of documents, to which it is denying access under an exemption for trade secrets.
(The lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)).
In fact, the New York Fed bank is by far the most powerful of the Fed regional banks, and the one through which the lion's shares of actions taken by the Federal Reserve occur. The New York Fed is also the regulator for the financial giants headquartered in New York.
As Bloomberg notes:
The Federal Reserve Board of Governors receives daily reports on bailout loans to financial institutions and won’t make the information public, the central bank said ...
Indeed, top Federal Reserve officials are even refusing to provide information to Congress.
For example, in a recent appearance before the Senate, the following exchange occured between Fed Chairman Ben Bernanke and Senator Bernie Senators:
Senator Sanders: "Will you tell the American people to whom you lent $2.2 trillion of their dollars?"
Chairman Bernanke: "No"
Similarly, Fed Vice Chair Donald Kohn refused to answer congressman Alan Grayson's questions about where the trillions in bailout money are going.
In a letter written today, and co-signed by by several prominent economists, Congressman Grayson says:
The Federal Reserve has refused multiple inquiries from both the House and the Senate to disclose who is receiving trillions of dollars from the central banking system. The Federal Reserve has redacted the central terms of the no-bid contracts it has issued to Wall Street firms like Blackrock and PIMCO, without disclosure required of the Treasury, and is participating in new and exotic programs like the trillion-dollar TALF to leverage the Treasury’s balance sheet. With discussions of allocating even more power to the Federal Reserve as the ‘systemic risk regulator’ of the credit markets, more oversight over the central bank’s operations is clearly necessary.
Congressman Ron Paul's Federal Reserve Transparency Act, which currently has 165 cosponsors, seeks to force the Fed to act in a more transparent fashion.
The bottom line is that - whether or not the Fed as a whole is federal or private - the entire Federal Reserve system, including the regional banks such as the New York Fed bank through which most of the Fed's actions take place, should be subject to congressional and public oversight.
